China must share the fruits of its economic miracle more evenly between rich
and poor as it seeks an orderly exit from last year’s massive £400bn
stimulus package, the country’s Premier Wen Jiabao said on Friday.

Chinese President Hu Jintao (left) and Premier Wen Jiabao inside the Great Hall of the National People's Congress on March 5

Delivering his annual ‘state of the nation’ address, Mr Wen said that after leading the world out of the global financial crisis China now faced a “crucial year” in which it must curb inflation and lay the foundations for stronger internal consumer demand.

“This is a crucial year for continuing to deal with the global financial crisis," Mr Wen said in a two-hour speech in the cavernous surroundings of the Great Hall of the People in Beijing, "We still face a very complex situation."

“We must not interpret the economic turnaround as a fundamental improvement in the economic situation," he added.

Setting a target of 8pc economic growth for 2010, which is below the expectations of many economists, Mr Wen promised increased social security spending on the rural poor and the migrant workers who form the backbone of China’s economy.

China’s social security spending will rise by 8.8pc while investment in rural areas will increase 12.8pc - more than the rise of 7.5pc in the military budget – and an indication of the need to further stimulate internal demand in China.

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After a year in which the financial crisis exposed China’s dangerous over-reliance on exports, Mr Wen appeared to heed recent calls to relax China’s household registration system which prevents migrant workers fully settling in China’s town and cities.

China expects more than 400m people to leave the countryside in the next 25 years, however international groups, including the World Bank, have called for the rules to be relaxed to enable them to become fully-fledged urban consumers.

“We will carry out reform of the household registration system and relax requirements for household registration in towns and small and medium-sized cities," said Mr Wen, but added that change would be “orderly” and “gradual”, dashing hope of radical change.

Other measures included promising to “resolutely curb” spiraling house prices, building more low-cost housing, continuing rural subsidies on electrical appliances and encouraging China’s under-developed service sectors including tourism, recreational sports and consumer finance.

The net effect is to aim to “resolutely reverse” the widening income gap in China which is a growing source of discontent as wealth becomes concentrated in the hands of big business and government elites rather than wage-earning workers.

"We will not only make the pie of social wealth bigger by developing the economy but also distribute it well on the basis of a rational income distribution system," he said, promising to curb executive pay and tax evasion.

Government excesses, a deep source of discontent in China, were also targeted with controls on extravagant buildings, fleets of official cars, overseas jaunts and official banquets and meetings that were “long on form and short on content”.

Addressing fears that last year’s stimulus package was creating a dangerous bubble in the world’s third-largest economy, Mr Wen set a tough inflation target of 3 per cent, considerably lower than many international forecasts.

However on key international issues, Mr Wen hinted at the divisions on trade, currency and climate change that continue to cause tension between China and its trading partners in Europe and the US.

Despite recent calls from the International Monetary Fund and others for China to allow its under-valued currency, the Renminbi, to rise against the dollar to ease global trade imbalances, Mr Wen said the currency would remain “basically stable at an appropriate and balanced level”.

He also warned, at a time of record trade disputes between China, Europe and the US that “trade protectionism clearly reasserting itself” and argued for a “more reasonable and balanced outcome” in the Doha trade round which is currently mired in disagreement.

After Copenhagen summit on Climate Change, which China was widely blamed for wrecking by Europe and the US, Mr Wen promised to “work for further progress” but gave no indication that China was prepared to change its stance on key issues.